The interview below is part of a series from the McGuireWoods Emerging Manager Program featuring impressive emerging managers. The McGuireWoods Emerging Manager Program supports emerging managers throughout the most critical stages of a fund’s evolution. It offers a differentiated and proprietary approach to connecting emerging managers with limited partners, providing intelligence on market terms and preferences, and advising emerging managers on all components of building a durable brand as an investor. To recommend an emerging manager for a future interview, email MWEMC@mcguirewoods.com.
Q: What led to the decision to raise your initial fund? What indicated that you were ready?
Josh Koplewicz: Our firm began by making investments in growing companies on a standalone basis through special purpose vehicles (SPVs) without a conventional, commingled fund in place. We initially focused on executing our core strategy and partnered with several businesses that received our capital. While forming and capitalizing the SPVs for these first deals, we began cultivating relationships with investors that eventually committed to our commingled funds.
As our SPVs matured, the firm further solidified long-term relationships with investors, who we built trust with by demonstrating our hard work and determination to develop investment opportunities into successful businesses. Many of these investors committed to our initial fund, recommitted to our second fund, and provided support, critical guidance and feedback that has shaped our business.
Q: What did you consider and prioritize when developing an investment strategy for your initial fund?
JK: Since its inception, our firm has focused on delivering returns for our limited partners and creating value. We provide flexible growth capital to lower-middle-market companies that often are not a perfect fit for traditional lenders or buyout firms. We typically design a customized structure based on the business’s needs that can include preferred equity, debt with warrants, or a hybrid and often incorporate structure to create downside protection while preserving upside potential.
For companies that receive capital from our firm, we offer an alternative to more traditional capital structures. We typically do not take control of a company. Instead, we opt for co-control that often incorporates rights associated with a material minority position. In contrast to providing conventional debt, our approach requires little or no immediate cash payments from the company, which frees up resources and allows cash to be reinvested in the business to accelerate growth initiatives. Our approach lets management and existing owners retain a greater share of their economic upside and maintain significant influence over the company’s direction, in contrast to selling to a buyout private equity firm.
In terms of sector focus, we deploy capital across the business, financial and real estate services sectors and focus on companies with highly recurring revenues that are resilient, growing and historically less correlated with economic cycles. Our targets often provide a critical, nondiscretionary service. Growth may be driven by a secular theme, such as migrating products and services to a more tech-enabled system, changing applicable regulations, or a more idiosyncratic factor that is specific to that subsector. In some scenarios, we provide additional support when there is inorganic growth potential through roll-ups of smaller competitors or portfolios of customers and contracts.
Q: How did you think about assembling your team?
JK: The firm has benefited from a talented and seasoned core team with extensive experience across the alternative investing landscape. While we remain a smaller team, our investment professionals bring a blend of equity and debt investing expertise, in-depth knowledge of our target sectors and training from larger institutions. Many are attracted by the opportunity to engage with and add value to smaller companies and concentrate their efforts on this segment of the growth curve.
Q: What is the best piece of advice you received when raising your first fund?
JK: The best advice I received from a mentor during our first fund raise was to focus on building trust with investors. He emphasized that fundraising is not only about pitching a compelling strategy or showcasing your track record, but also about demonstrating integrity and delivering on your commitments —doing what you say you’ll do. Investors in emerging funds are betting as much on the manager and the development of a long-term relationship as they are on the strategy.
As a result, our team always tries to very clearly describe the risks of investing — and how we intend to mitigate those risks — and our differentiation, particularly as it relates to our approach of structured growth equity in the lower-middle market versus traditional buyout.
ABOUT JOSH KOPLEWICZ
Josh Koplewicz is the founder and managing partner of Thayer Street Partners, a boutique private investment firm that provides flexible growth capital to recurring revenue businesses in the lower middle market. The firm specializes in structured equity solutions and roll-up platform investing in businesses with lower correlation to macroeconomic cycles across the financial, business and real estate services sectors. Thayer Street creates bespoke partnerships with founders and management teams and utilizes a risk-adjusted capital orientation to scale businesses and achieve shareholder objectives. Prior to founding Thayer Street, Koplewicz was a member of Goldman Sachs’ Special Situations Group, an on-balance sheet investment platform, which he joined after graduating from Brown University.